Antitrust Division Gives Thumbs Up to Pork Farmers’ Collaboration on Hog Euthanasia
Continuing its commitment to provide expedited guidance during the COVID-19 pandemic, on Friday, May 15, 2020, the Department of Justice (DOJ) Antitrust Division issued a favorable business review letter regarding coronavirus-related collaboration between competing pork producers. The letter responded to a request by the National Pork Producers Council (NPPC), the largest hog farmers’ trade association in the U.S., seeking antitrust review for a proposed collaboration between competing farmers to address an industry-wide hog overpopulation problem.
Too Many Hogs and Not Enough Workers
The coronavirus pandemic has caused a labor shortage for pork-packing plants across the country. COVID-19 outbreaks among workers have forced many plants to operate at reduced capacity and others to close temporarily. With plants unable to process as much as expected, many hogs miss the window for viable harvesting and become unmarketable due to their age and size. According to the NPPC, experts estimate approximately 700,000 hogs per week need to be euthanized as a result of current pork-packing plant closures.
On April 24, 2020, the Animal and Plant Health Inspection Service (APHIS), a subdivision of the United States Department of Agriculture (USDA), established a special program to assist meat producers whose animals could not move to market as a result of coronavirus-induced plant closures. APHIS announced a new coordination center to “advise and assist on depopulation and disposal methods.”
On April 28, 2020, President Trump issued an Executive Order expanding the USDA’s authority to address supply chain concerns in the meat industry. The Executive Order authorized the Secretary of Agriculture to determine the “allocation of all the materials, services, and facilities necessary to ensure the continued supply of meat and poultry […]”
Proposed Collaboration Directed by Feds & Narrowly Focused
The NPPC submitted its request on May 8th, capitalizing on the DOJ’s recent notice for expedited turn-around of coronavirus-related business review requests.
The request detailed a protocol whereby hog farmers plan to use NPPC as the vehicle to coordinate with the USDA/APHIS and state authorities on an ethical process to euthanize as few hogs as possible. The NPPC proposed collaborative discussions among its members to organize centralized euthanasia and disposal stations. The proposal expressly intends collaboration to be conducted at the direction and supervision of the USDA.
The NPPC’s protocol incorporated several antitrust-specific safeguards:
Farmers would continue to make unilateral decisions on the quantity of hogs to be euthanized;
NPPC promised not to facilitate any coordination or discussion of prices, nor to engage in profiteering;
The collaboration would be limited to the time period necessary to respond to the COVID-19 crisis (the NPPC “hopes and anticipates” the crisis will end within six months).
DOJ Review Finds Minimal Antitrust Concerns
The DOJ’s business review letter stated the Department does not intend to challenge the farmers’ proposed conduct; however, like all business review letters, it retains the right to bring a complaint.
The DOJ’s reasoning was based on a two-part framework the Department uses to assess “conduct aimed at addressing COVID-19.” Such conduct will not be challenged if it is (1) “compelled by an agreement with a federal agency or a clearly defined federal government policy” and (2) “supervised by a federal agency.”
In this case, the Department agreed that most of the NPPC’s proposed conduct would occur under the direction and supervision of the USDA/APHIS. The APHIS will tell farmers where they should take hogs for euthanasia, and individual farmers will retain their unilateral decision on whether and how many hogs to euthanize.
To the extent the proposal facilitates unsupervised collaboration, the DOJ said its subject matter did not generally raise antitrust concerns. The Department acknowledged information shared by rival farmers regarding euthanasia equipment, protocols, and practices is not considered competition-sensitive information that facilitates price fixing or other anticompetitive behavior.
The Antitrust Division’s business review letter to pork farmers illustrates how coronavirus-related collaboration among competitors extends far beyond the health care industry. In this context, although output restricting in initial effect, the pork farmers’ collaboration pertains only to mass emergency disposal of unusable product and will proceed at the direction of federal agents pursuant to an executive order. Moreover, the collaborative effort could actually increase output by reducing unnecessary waste, and the competitors committed to several specific safeguards designed to avoid antitrust concerns.
The DOJ’s business review letter is available here. The NPPC’s request can be read here. Should you have any questions about this, or any other antitrust or competition law question, please feel free to contact any of the legal professionals listed above.
Co-authored by Evan Moore.